Vodacom sets sights on new services revenue

As traditional business reaches saturation, financial services is a key growth area for mobile network operators

18 November 2023 - 17:02
By Thabiso Mochiko
A man transacts online using a cellphone app and a credit card.
Image: Konstantin Postumitenko Mobile money A man transacts online using a cellphone app and a credit card.

Vodacom will add a virtual banking card to its VodaPay platform to enable customers to make payments in-store or online as the group eyes up to 30% in revenue from new services, including financial products, in the next three-five years.

New services such as the Internet of Things, digital and financial solutions contributed R11.7bn, or 19.8%, to group service revenue of R59.4bn for the six months to September, the company said this week.

Vodafone Egypt provided the biggest boost in the growth of 35.5% in total revenue, which hit R73bn, CEO Shameel Joosub said.

Service revenue includes monthly access charges, airtime usage, roaming, incoming and outgoing network usage by non-Vodacom customers and interconnect charges for incoming calls.

Financial services revenue was up 39.9% to R6.2bn, with South Africa contributing R1.5bn. In this country, Vodacom added just over 3-million customers in the six months to September, reaching 47-million. 

The company will drive more adoption of the VodaPay app, which has 4.1-million users, and will launch a virtual card to expand its services, Joosub said.

VodaPay is a marketplace for services including food, insurance, airtime and electricity. It has integrated third-party shopping apps such as Clicks, Makro, Zulzi, KFC and KitKat grocery wholesaler.

Vodacom also provides lending and customers can transfer money from their bank accounts to their VodaPay wallet for purchases.

Here, new services were up 18.8% and contributed 16.6% or R5.1bn towards South African service revenue of R30.7bn. Financial services revenue increased 10.8%, underpinned by insurance growth of 17.2%. 

The take-up of insurance products continues to grow, and vouchers and buy now, pay later options are also popular among VodaPay users, Joosub said.

Financial services is a key growth area for mobile network operators as traditional business reaches saturation. MTN, which wants 5-million active fintech customers in South Africa by 2025, recently sold a stake in its financial services business to Mastercard.

Asked if Vodacom will consider selling shares in its offering, Joosub told analysts: “We previously felt that the timing was too early and that there was more opportunity to try to grow the business, which we're still focusing on. The business has been accelerating, so I think very good growth this year will be circa $1.6bn (about R30bn) or $1.7bn in terms of absolute revenue coming from financial services in Kenya and the Vodacom footprint ... So we haven't decided yet or made any decisions to pursue a potential sale.”

Peter Takaendesa, head of equities at Mergence Asset Managers, said for MTN and Vodacom, mobile money and data are still structural growth drivers in Africa, and now that they have acquired large chunks of the spectrum, “I think they can fully tap into that growth profitably and sustainably, provided excellent execution is maintained.”

Countries Vodacom operates in include Kenya (through Safaricom), Egypt, Mozambique, Lesotho, the Democratic Republic of Congo and Tanzania. It has a stake in a new Ethiopian network operator that has 196.2-million subscribers.

These countries have a combined population of more than 500-million. Based on performance in the first six months, the operations are on track to deliver about R150bn in revenue for the financial year ending March next year, said Joosub. 

MTN has 290.1-million subscribers in 19 countries and 63.5-million active Mobile Money (MoMo) users monthly.

New strategic growth drivers, including entering a greenfield operation in Ethiopia, as well as acquiring a controlling stake in Vodafone Egypt, price increases in South Africa and structural growth in fintech operations, should support Vodacom’s ambition of growing profits in high single digits over the next three-five years, said Takaendesa.

“We believe these targets are achievable if Vodacom continues to execute well to avoid losing market share to competitors and most importantly focus on optimising capital allocation to sustain returns above the group’s cost of capital.”

Vodacom CFO Raisibe Morathi said losses in Ethiopia, where the group launched Safaricom Ethiopia last year, had hit earnings. But he said the Ethiopian business was expected to break even within four years.